A VPI LLC unit has decided to exit the rigid PVC film business and close a Delaware City, Del., calendering operation.
VPI agreed Feb. 14 to sell most of the site's manufacturing assets to KlÃ¶ckner Pentaplast of America Inc. and to operate the facility through June to process orders for KlÃ¶ckner. Separately, after operations cease, VPI will sell the 180,000-square-foot structure.
The deal includes customer lists, four calendering lines, inventories, proprietary product formulations and trade names. KlÃ¶cker indicated it intends to maintain a full range of the plant's product offerings.
Subject to due-diligence review, the transaction is expected to close March 3. Terms were not disclosed.
About 200 VPI employees learned about the agreement Feb. 19.
``We are saddened by the need to make this announcement, and we will help our employees in transitioning to new employment opportunities,'' Greg Mickelson, president and chief operating officer of Sheboygan, Wis.-based VPI, said in a news release.
The Delaware City site opened in 1965 as a joint venture of Germany's Hoechst AG and Stauffer Chemical Corp. of Cleveland. Stauffer sold its interest to Hoechst in 1971.
The business underwent a leveraged buyout in 1989, and VPI acquired the operation in its 1997 purchase of American Mirrex Corp. At that time, the Delaware City plant had annual sales of about $75 million. VPI did not reveal current sales. VPI runs the business as part of its VPI Mirrex LLC unit.
In hindsight, Mickelson acknowledged that the 1997 decision to acquire the PVC rigid films business was flawed.
``We have not been able to realize anticipated synergies between this operation and our other businesses,'' he said.
In addition, he said, ``This division has suffered significant losses in the last few years. Despite our continued investments in the operation and the dedication and work of our employees, we do not envision a successful turnaround that will achieve sustained profitability.''
In a telephone interview, Mickelson said, ``Before VPI bought Mirrex, there had been no investment in newer and better machines for many years.''
Major competitors KlÃ¶ckner of Gordonsville, Va., and Nan Ya Plastics Corp. America of Livingston, N.J., ``are bigger than we are and run faster machines than we have,'' he said.
In April, VPI retained investment banking firm Lincoln Partners LLC of Chicago for help in evaluating business options for the Delaware City operation. Over many months, VPI and Lincoln analyzed possible paths, which led to the decision to sell the assets and close the plant.
Separately from the Delaware City operation, privately held VPI supplies materials for commercial flooring, plastic packaging, printing and medical applications through operating divisions in Sheboygan, Sheboygan Falls and Manitowoc, Wis.; and Salisbury, Md.
KlÃ¶ckner plans to disassemble one Delaware City calendering line beginning in July, perform state-of-the-art retrofits and install the equipment at its Rural Retreat, Va., plant for a production start-up in February 2004.
``In addition to the one-line relocation, we are considering the use of a second Mirrex line in Rural Retreat as well, but we do not need to decide immediately,'' Michael Tubridy, KlÃ¶ckner executive vice president, said by telephone.
``The remaining machines have drawbacks in terms of age and outdated technology,'' he said, ``but they do have recent modifications that can be installed and utilized on KPA machines to enhance capacity and productivity throughout KPA's facilities.''
Industry analyst Peter Schmidt of Montesino Associates LLC in Wilmington, Del., noted the decades-long distinction in rigid-sheet markets between calendered PVC and other sheet materials that are extruded.
Schmidt noted recent KlÃ¶ckner moves in extrusion and the Delaware City announcement. They ``are signs of a possible attempt to significantly grow their position as market leader in thin-gauge rigid sheet, regardless of the processing technology used to make it,'' Schmidt said via e-mail.
``History strongly suggests that KlÃ¶ckner will continue to focus on growth and gaining market share: bad news for its competitors but reassuring news for its customers,'' Schmidt said.